Government, RBI working on new monetary policy framework: Rajan

Hyderabad: RBI Governor Raghuram Rajan said the central bank and the government are in discussion to formulate a new monetary policy framework which will be more expressive and in line with international standards.

"The monetary policy framework is a far-sighted move on the part of the government. It is an attempt to move us to standards where other countries have reached. It is a discussion about how we make objectives of the central bank more expressive," he said while interacting with students of Indian School of Business (ISB) here.

The Finance Ministry and the RBI will finalise the new monetary policy framework by December-end under which the central bank will pursue the retail inflation target to be decided by the government.

Rajan further said RBI and the government "enjoy a free, frank and cordial" relationship. He said there is no need forany conflict between the RBI and the government and various things can be worked out smoothly.

"The truth is that the government and the RBI enjoy a free, frank and cordial relationship. We discuss many things and we find and do what is in the best interest of the country," he said.

He further said discussion is going on a couple of things. "One is of course a number of institutional structures that will improve the functioning of the financial sector – for example, a financial resolution authority," he said.

Such an authority, Rajan said would be helpful in cleaning up the system by closing down entities which are in trouble and resurrecting promising ones, he said.

"We really need a financial resolution authority so that we can close down financial institutions which get into trouble without necessarily merging them and taking up losses. We need to clean up institutions while resurrecting functioning ones. So, the financial resolution authority will be an entity doing it," he said.

On RBI's restructuring process, the Governor said that there was a broad consensus within the apex bank. RBI last week promoted three senior officials as executive directors and also reshuffled portfolios of some EDs.